What Is Life Insurance With Maturity Benefits?
People usually buy life insurance plans to deal with unfortunate events that can leave their families without any financial support. They want to ensure to a certain extent that their dependents continue to remain financially secure if an untimely event were to occur. However, what happens if the insurance plan matures without the occurrence of any such event?
In a pure term insurance plan, the policyholder is unlikely to receive any monetary benefit in such a scenario. This may be appropriate if a person is solely looking for life insurance coverage for a particular period.
However, what if the policyholder seeks more than a life cover from their life insurance policy? Such people may find the suitable financial product in a life insurance policy with maturity benefits.
What are the Maturity Benefits with a Life Insurance Policy?
The term ‘maturity benefits’ refers to the life assured having the advantage of receiving lump sum amount when the policy reaches its maturity, if he/she survives the policy tenure, provided all due premiums are paid. . The maturity benefit you are eligible to receive depends on the kind of life insurance policy you purchase and the policy terms and conditions. While adding a maturity benefit aspect to your life insurance plan may increase your premium to an extent, the advantages it offers may prove to be worth in the long run. The money you receive on maturity can help you meet the long-term financial goals you may have set.
Let’s take Aditya’s example. He bought a term insurance plan with return of premium feature that offers maturity benefits, and a tenure of 15 years.. Fortunately, no tragic event happened with him in those years, and the plan matured at the end of 15 years. This made him eligible to receive the maturity benefits from the plan. He used the money received to expand his business.
How much is the Benefit in a Life Insurance Policy with Maturity Benefits?
The amount of money you receive on your policy’s maturity depends on the type of policy chosen. Let’s take a look at some types of life insurance that offer maturity benefits of varying kinds:
1. Term insurance with Return of Premium (TROP)
If you are looking for an affordable policy with maturity benefits, then a Term Insurance with Return of Premium plan can be the suitable option. Pure Term insurance plans offer only protection, that is, there is no saving or investment element attached to them. Hence, they are relatively affordable.
With an added Return of Premium feature, you can receive the sum of all the premiums paid when you outlive the plan’s maturity, less the applicable deductions. The premiums for a term plan with the ROP feature are nominally higher than a pure term plan. You can get an estimate of the same with the help of a term insurance calculator.
One of the major term insurance tax benefits1 is that the maturity proceeds from a term plan are exempted from taxation under Section 10 (10D) of the Income Tax Act of 1961 if the annual premium does not exceed 10% of the death sum assured. This is applicable for policies bought after 1st April 2012. For policies bought before 1st April 2012, the premium should not exceed 20% of the death sum assured.
2. Endowment plans
Endowment plans refer to life insurance policies that have a savings component linked to them. The premiums of your endowment plans are used to provide a life cover as well as accumulate money which turns into a larger corpus as the policy years go by. The policyholder/nominee receives the accumulated wealth at policy maturity.
The savings in an endowment plan are accumulated via low-risk investments and hence, these plans are relatively safer than the ones investing in equity markets.
Premiums of up to 1.5 lakhs per year paid for endowment plans are deductible under Section 80C of the Income Tax Act, 1961 (the Act), subject to the terms and conditions stated therein3. The maturity benefits are also tax-free under section 10(10)D of the Act, if the death sum assured is at least 10 times the annualized premium in all years, subject to the terms and conditions stated in the Act3.
3. Unit-linked Insurance Plans (ULIPs)
If you are looking for a life insurance policy with maturity benefits in the form of market-linked returns, then ULIPs can be the way to go. These are insurance products that offer life insurance as well as investment opportunity under one product.
One can choose to invest in equity, debt, or even a combination of both. Depending on the asset class you choose, your investment may be exposed to a certain amount of risk. Equity instruments may mean more risk, but they may yield higher returns as well, basis market performance. Debt instruments may be a better option for those with a low-to-moderate risk appetite.
As per an amendment in Budget 2021, the maturity proceeds (excluding death proceeds) from a ULIP are taxed as capital gain if the aggregate annual premium of the policy in any year goes above the limit of Rs 2.5 lakhs2 and policy is issued on or after 1 February 2021. Policyholders with their annual premiums below the given limit can enjoy ULIP tax benefits in the form of tax-exempted proceeds, subject to satisfaction of conditions as mentioned in Section 10(10D) of the Act.
Note that for you to be eligible to enjoy the maturity benefits with any life insurance plan, you must pay all the premiums on time. You must also read the policy wordings before proceeding with the purchase so that you are aware of the terms and conditions that need to be met.
Other Benefits that come with Life Insurance
Along with maturity benefits, there are other advantages that one can enjoy with life insurance, such as:
• Additional financial protection
To level up the financial protection for yourself and your loved ones, you can opt for riders. These are add-ons, such as critical illness rider, waiver of premium rider, and so on, also available with life insurance with maturity benefits. These can be opted on payment of additional nominal premium. These offer extra financial compensation if the covered event were to occur during the policy term.
• A backup for liabilities
As long as you are earning, you may be able to pay the EMIs of your debts. However, if you were to breathe your last, this liability can fall on your loved ones’ shoulders. With the sum assured from a life insurance plan, it can help them handle such liabilities effectively.
• Peace of mind
It is easier to have peace of mind when you know that your loved ones would have financial security even when you are no longer around.
Buying a life insurance policy with maturity benefits allows one to enjoy the assurance of a life cover for a given period and also maturity benefits at the end of policy period on survival.
1. How to calculate the premium of a life insurance plan with maturity benefits?
The premiums of life insurance plans are subjective and depend on several variables. Some common determinants of the premium are age, gender, medical history, smoking/drinking habits, and occupation amongst others. To get a premium estimate for yourself based on some common factors, you can use a life insurance calculator. The actual premium may vary.
2. Are there multiple payout options available with maturity benefits?
This depends on the policy type and the insurance provider. Some plans allow for regular instalment-based maturity payouts rather than a lump-sum payment. It is preferred to get clarity regarding this with your insurance provider and/or insurance agent before proceeding.
3. When should one buy life insurance with maturity benefits?
The sooner you buy a life insurance plan, the longer your money stays invested in, which helps in creating a larger corpus that you can receive during maturity, in certain types of plans.
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